FLORHAM PARK, N.J.--(BUSINESS WIRE)--Zoetis
Inc. (NYSE:ZTS) today reported its financial results for the fourth
quarter and full year 2015 and updated its guidance for full year 2016
and 2017.

The company reported revenue of $1.3 billion for the fourth quarter of
2015, a decrease of 3% from the fourth quarter of 2014. Revenue
reflected an operational1 increaseof 6%, excluding
the impact of foreign currency.

Net income for the fourth quarter of 2015 was $22 million, or $0.04 per
diluted share, a decrease of 83% and 84%, respectively, compared to the
fourth quarter of 2014; the significant decrease was primarily driven by
charges related to changes in the company’s accounting for operations in
Venezuela. Adjusted net income2 for the fourth quarter of
2015 was $214 million, or $0.43 per diluted share, an increase of 5% and
8%, respectively. Adjusted net income for the fourth quarter of 2015
excludes the net impact of $192 million, or $0.39 per diluted share, for
purchase accounting adjustments, acquisition-related costs and certain
significant items. On an operational basis, adjusted net income for the
fourth quarter of 2015 increased 29%, with foreign currency having a
negative impact of 24 percentage points.

For the full year 2015, the company reported revenue of $4.8 billion,
which is flat compared with the full year 2014. Revenue reflected an
operationalincreaseof 8%, with foreign currency
having a negative impact of 8 percentage points.

Net income for the full year 2015 was $339 million, or $0.68 per diluted
share, decreasing 42% and 41%, respectively, compared to the full year
2014. Adjusted net income for the full year 2015 was $889 million, or
$1.77 per diluted share, an increase of 13% compared with full year
2014. Adjusted net income for the full year 2015 excludes the net impact
of $550 million, or $1.09 per diluted share, for purchase accounting
adjustments, acquisition-related costs and certain significant items. On
an operational basis, adjusted net income for the full year 2015
increased 24%, with foreign currency having a negative impact of 11
percentage points.

EXECUTIVE COMMENTARY

“In 2015, Zoetis continued to affirm our reputation as the global leader
in the animal health industry with a strong financial performance,
ongoing investments in our future growth, and a commitment to creating
value for our customers and our shareholders,” said Juan Ramón Alaix,
Chief Executive Officer at Zoetis. “In our three years as a public
company, we have been delivering consistent operational revenue growth,
and we expect our 2015 growth to show once again that we are growing
faster than the industry.”

“We also grew our adjusted net income faster than sales as we focus on
greater efficiency in our business,” continued Alaix. “We continue to
have confidence in our end markets, business model, new product
launches, improved product supply and progress toward our efficiency
goals. Despite the negative impacts of foreign currency and Venezuela,
we are pleased to reaffirm our 2016 and 2017 guidance for adjusted
earnings per share, which was updated in January to reflect the European
Commission tax decision.”

“We delivered 6% operational revenue growth in the fourth quarter, which
is particularly notable as compared against a strong fourth quarter of
2014,” said Paul Herendeen, Chief Financial Officer at Zoetis. “Our
commitment to improving the efficiency of our operations – expenses were
down 8% operationally in the quarter – enabled us to grow adjusted net
income by 29% operationally.”

“Our industry and our company continue to grow despite turbulence in
parts of the global economy. For 2015, we delivered operational revenue
growth of 8%, extending our history of growing faster than the animal
health market,” said Herendeen. “The same drivers that made 2015 a
financial success for Zoetis -- a resilient and growing animal health
industry, new products, lifecycle innovations, business development
activities and fast-paced improvements to our cost structure -- give us
great confidence in our future.”

QUARTERLY HIGHLIGHTS

Zoetis organizes and manages its business across two regional operating
segments: the United States (U.S.) and International. Within these
segments, the company delivers a diverse portfolio of products for
livestock and companion animals tailored to local trends and customer
needs. In the fourth quarter of 2015:

Revenue in the U.S. segment was $636 million, an increase of 8%
compared with the fourth quarter of 2014. Sales of companion animal
products grew 30%, due to the addition of products acquired from
Abbott Animal Health and increased availability of APOQUEL®.
Sales of livestock products declined 5%, primarily in swine and cattle
products, due to the timing of seasonal buying patterns compared with
the prior year.

Revenue in the International segment was $624 million, an
increase of 3% operationally compared with the fourth quarter of 2014.
Sales of companion animal products grew 6% operationally, led by
increased availability of APOQUEL in the UK and other European
markets, timing of buying patterns in Japan, and continued growth of
vaccines in China. Sales of livestock products grew 2% operationally,
led by growth in Brazil, Spain and Mexico. Growth in Brazil was due to
strength in the cattle market and successful new product launches.
Growth in Spain was driven by strong performance in swine, while
growth in Mexico was due to performance of key brands in cattle and
swine. Livestock growth in these markets was offset by business
reductions in Venezuela and India, weakness in anti-infective sales in
Western Europe, and unfavorable weather conditions in the UK.

Zoetis continues to drive demand and strengthen its diverse portfolio of
products through lifecycle innovations, strong customer relationships
and access to new markets and technologies. The company is focused on
improving the performance and delivery of its current product lines;
expanding product indications across species; pursuing approvals in new
geographies; and developing innovative medicines, treatments and
solutions for emerging diseases and unmet customer needs. Some recent
highlights include:

Zoetis received approval in the European Union and New Zealand for SIMPARICA™
(sarolaner), a new oral parasiticide for dogs that will help the
company compete in the approximately $3 billion global market of flea
and tick products. Zoetis is also on track for approval in the U.S. in
the first quarter of 2016 and expects to launch there and in the EU at
that time, with other global markets to follow.

Zoetis continued to broaden its innovative vaccine offerings for both
companion animal and livestock as it strengthens its portfolio and
focus on disease prevention.

In November, the company was granted a conditional license from the
U.S. Department of Agriculture (USDA) to market Canine Influenza
Vaccine, H3N2, Killed Virus, the first conditionally licensed
vaccine to help control disease associated with canine influenza virus
H3N2 (CIV H3N2).

Zoetis also expanded its INNOVATOR® horse vaccine franchise in
the U.S. in November with the launch of LEPTO EQ INNOVATOR®, the first
and only vaccine licensed for use in horses, six months of age or
older, to aid in the prevention of leptospirosis caused by L. Pomona.

In December, the company received USDA licensure for VANGUARD®crLyme,
a vaccine that aids in the prevention of clinical disease and
subclinical arthritis associated with Borrelia burgdorferi, the
causative agent of Lyme disease in dogs.

Shortly after the company closed its deal in the fourth quarter to
acquire PHARMAQ, the global leader in vaccines for aquaculture,
one of their new vaccines for salmon received an emergency license in
Chile, one of the world’s largest farmed fish markets.

As part of bringing lifecycle innovation to its existing portfolio,
Zoetis received approvals for new indications and formulations of key
products.

In January, Zoetis received FDA approval for an update to the labeling
for CERENIA® (maropitant citrate) Injectable, which allows for
intravenous administration during surgical protocols, which use
medication that induces vomiting. Previously approved only for
subcutaneous injection, this CERENIA label update gives veterinarians
the flexibility of an additional delivery option to help prevent
vomiting in canine and feline patients.

The company also launched a new formulation of LUTALYSE®, a
reproductive product for use in dairy and beef cattle, in the U.S.
LUTALYSE HighCon is the first and only prostaglandin on the market
approved by the FDA for subcutaneous administration in addition to
intramuscular administration. This approval provides producers and
veterinarians with flexible administration options while allowing them
to abide by strict dairy and beef quality assurance standards.

FINANCIAL GUIDANCE

Zoetis' guidance for the full year 2016 and the full year 2017 continues
to reflect the company’s confidence in its diverse portfolio, the
strength of its business model, and the stability and predictability of
the animal health industry. The guidance includes the previously
announced impact of the European Commission decision regarding Belgium
tax rulings.

Zoetis has also updated elements of its guidance today to reflect
foreign exchange rates as of late January, changes related to the
company’s accounting for its operations in Venezuela, and other
operational views. Considering these factors, the company’s guidance for
the full year 2016 and the full year 2017 is the following:

Full Year 2016:

Revenue of between $4.650 billion to $4.775 billion

Reported diluted EPS for the full year of between $1.30 to $1.48 per
share

Adjusted diluted EPS for the full year between $1.71 to $1.81 per share

Full Year 2017:

Revenue of between $4.950 billion to $5.150 billion

Reported diluted EPS for the full year of between $1.95 to $2.13 per
share

Adjusted diluted EPS for the full year between $2.18 to $2.32 per share

“Despite the continued negative impact of foreign currency since we
provided guidance in November, we have been able to offset that impact
on our adjusted diluted EPS, based on the strong momentum in our
business, advancement of our R&D pipeline and successful execution of
our efficiency plans,” said Paul Herendeen, Chief Financial Officer at
Zoetis.

Additional guidance on other items such as expenses and tax rate is
included in the financial tables and will be discussed on the company's
conference call this morning.

WEBCAST & CONFERENCE CALL DETAILS

Zoetis will host a webcast and conference call at 8:30 a.m. (EST) today,
during which company executives will review fourth quarter and full year
2015 results, discuss 2016 and 2017 financial guidance and respond to
questions from financial analysts. Investors and the public may access
the live webcast by visiting the Zoetis website at http://www.zoetis.com/events-and-presentations.
A replay of the webcast will be archived and made available on Feb. 16,
2016.

About Zoetis

Zoetis (zô-EH-tis) is the leading animal
health company, dedicated to supporting its customers and their
businesses. Building on more than 60 years of experience in animal
health, Zoetis discovers, develops, manufactures and markets veterinary
vaccines and medicines, complemented by diagnostic products and genetic
tests and supported by a range of services. Zoetis serves veterinarians,
livestock producers and people who raise and care for farm and companion
animals with sales of its products in more than 100 countries. In 2015,
the company generated annual revenue of $4.8 billion with approximately
9,000 employees. For more information, visit www.zoetis.com.

Forward-Looking Statements:This
press release contains forward-looking statements, which reflect the
current views of Zoetis with respect to business plans or prospects,
future operating or financial performance, future guidance, future
operating models, expectations regarding products, future use of cash
and dividend payments, tax rate, and other future events. In particular,
this press release contains forward looking statements that reflect the
current views of Zoetis with respect to our tax rate and tax regimes,
changes in the tax regimes in other jurisdictions and challenges to our
efforts to mitigate the impact of tax decisions such as the recent one
by the European Commission. These statements are not guarantees of
future performance or actions. Forward-looking statements are subject to
risks and uncertainties. If one or more of these risks or uncertainties
materialize, or if management's underlying assumptions prove to be
incorrect, actual results may differ materially from those contemplated
by a forward-looking statement. Forward-looking statements speak only as
of the date on which they are made. Zoetis expressly disclaims any
obligation to update or revise any forward-looking statement, whether as
a result of new information, future events or otherwise.A
further list and description of risks, uncertainties and other matters
can be found in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2014, including in the sections thereof captioned
“Forward-Looking Information and Factors That May Affect Future Results”
and “Item 1A. Risk Factors,” in our Quarterly Reports on Form 10-Q and
in our Current Reports on Form 8-K. These filings and subsequent filings
are available online at www.sec.gov,
www.zoetis.com,
or on request from Zoetis.

Use of Non-GAAP Financial Measures:We use non-GAAP financial measures, such as adjusted net income and
adjusted diluted earnings per share, to assess and analyze our
operational results and trends and to make financial and operational
decisions. We believe these non-GAAP financial measures are also useful
to investors because they provide greater transparency regarding our
operating performance.The non-GAAP financial measures included
in this press release should not be considered alternatives to
measurements required by GAAP, such as net income, operating income, and
earnings per share, and should not be considered measures of liquidity.
These non-GAAP financial measures are unlikely to be comparable with
non-GAAP information provided by other companies. Reconciliation of
non-GAAP financial measures and GAAP financial measures are included in
the tables accompanying this press release and are posted on our website
at www.zoetis.com.

Internet Posting of Information:We routinely post information that may be important to investors in
the 'Investors' section of our website at www.zoetis.com,
on our Facebook page at http://www.facebook.com/zoetis
and on Twitter @zoetis. We encourage investors and potential investors
to consult our website regularly and to follow us on Facebook and
Twitter for important information about us.

ZOETIS INC.

CONSOLIDATED STATEMENTS OF INCOME(a)

(UNAUDITED)

(millions of dollars, except per share data)

Fourth Quarter

Full Year

2015

2014

% Change

2015

2014

% Change

Revenue

$

1,274

$

1,320

(3)

$

4,765

$

4,785

—

Costs and expenses:

Cost of sales(b)

496

491

1

1,738

1,717

1

Selling, general and administrative expenses(b)

425

497

(14)

1,532

1,643

(7)

Research and development expenses(b)

109

124

(12)

364

396

(8)

Amortization of intangible assets(c)

16

14

14

61

60

2

Restructuring charges and certain acquisition-related costs

40

15

*

320

25

*

Interest expense

38

30

27

124

117

6

Other (income)/deductions–net

81

(6

)

*

81

7

*

Income before provision for taxes on income

69

155

(55)

545

820

(34)

Provision for taxes on income

49

29

69

206

233

(12)

Net income before allocation to noncontrolling interests

20

126

(84)

339

587

(42)

Less: Net income (loss) attributable to noncontrolling interests

(2

)

—

*

—

4

*

Net income attributable to Zoetis

$

22

$

126

(83)

$

339

$

583

(42)

Earnings per share—basic

$

0.04

$

0.25

(84)

$

0.68

$

1.16

(41)

Earnings per share—diluted

$

0.04

$

0.25

(84)

$

0.68

$

1.16

(41)

Weighted-average shares used to calculate earnings per share (in

thousands)

Basic

498,271

501,560

499,707

501,055

Diluted

500,639

503,269

502,019

502,025

* Calculation not meaningful.

(a)

The consolidated statements of income present the three and twelve
months ended December 31, 2015 and 2014. Subsidiaries operating
outside the United States are included for the three and twelve
months ended November 30, 2015 and 2014.

(b)

Exclusive of amortization of intangible assets, except as discussed
in footnote (c) below.

(c)

Amortization expense related to finite-lived acquired intangible
assets that contribute to our ability to sell, manufacture,
research, market and distribute products, compounds and
intellectual property is included in Amortization of intangible
assets as these intangible assets benefit multiple business
functions. Amortization expense related to acquired intangible
assets that are associated with a single function is included in Cost
of sales, Selling, general and administrative expenses or Research
and development expenses, as appropriate.

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Quarter Ended December 31, 2015

GAAP

Reported(1)

Purchase

Accounting

Adjustments

Acquisition-

Related

Costs(2)

Certain

Significant

Items(3)

Non-GAAP

Adjusted(a)

Revenue

$

1,274

$

—

$

—

$

—

$

1,274

Cost of sales(b)

496

(2

)

—

(27

)

467

Gross profit

778

2

—

27

807

Selling, general and administrative expenses(b)

425

—

—

(35

)

390

Research and development expenses(b)

109

(1

)

—

(2

)

106

Amortization of intangible assets(c)

16

(13

)

—

—

3

Restructuring charges and certain acquisition-related costs

40

—

(10

)

(30

)

—

Interest expense

38

—

—

—

38

Other (income)/deductions–net

81

—

—

(92

)

(11

)

Income before provision for taxes on income

69

16

10

186

281

Provision for taxes on income

49

4

1

15

69

Income from continuing operations

20

12

9

171

212

Net loss attributable to noncontrolling interests

(2

)

—

—

—

(2

)

Net income attributable to Zoetis

22

12

9

171

214

Earnings per common share attributable to Zoetis–diluted(d)

0.04

0.03

0.02

0.34

0.43

Quarter Ended December 31, 2014

GAAP

Reported(1)

Purchase

Accounting

Adjustments

Acquisition-

Related

Costs(2)

Certain

Significant

Items(3)

Non-GAAP

Adjusted(a)

Revenue

$

1,320

$

—

$

—

$

—

$

1,320

Cost of sales(b)

491

(1

)

—

(19

)

471

Gross profit

829

1

—

19

849

Selling, general and administrative expenses(b)

497

(1

)

—

(46

)

450

Research and development expenses(b)

124

(1

)

—

(1

)

122

Amortization of intangible assets(c)

14

(10

)

—

—

4

Restructuring charges and certain acquisition-related costs

15

—

(3

)

(12

)

—

Interest expense

30

—

—

—

30

Other (income)/deductions–net

(6

)

—

—

—

(6

)

Income before provision for taxes on income

155

13

3

78

249

Provision for taxes on income

29

4

1

12

46

Net income attributable to Zoetis

126

9

2

66

203

Earnings per common share attributable to Zoetis–diluted(d)

0.25

0.02

—

0.13

0.40

ZOETIS INC.

RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars, except per share data)

Twelve Months Ended December 31, 2015

GAAP

Reported(1)

Purchase

Accounting

Adjustments

Acquisition-

Related

Costs(2)

Certain

Significant

Items(3)

Non-GAAP

Adjusted(a)

Revenue

$

4,765

$

—

$

—

$

—

$

4,765

Cost of sales(b)

1,738

(9

)

—

(62

)

1,667

Gross profit

3,027

9

—

62

3,098

Selling, general and administrative expenses(b)

1,532

—

—

(133

)

1,399

Research and development expenses(b)

364

(2

)

—

(2

)

360

Amortization of intangible assets(c)

61

(46

)

—

—

15

Restructuring charges and certain acquisition-related costs

320

—

(19

)

(301

)

—

Interest expense

124

—

—

—

124

Other (income)/deductions–net

81

—

(2

)

(94

)

(15

)

Income before provision for taxes on income

545

57

21

592

1,215

Provision for taxes on income

206

18

(1

)

103

326

Net income attributable to Zoetis

339

39

22

489

889

Earnings per common share attributable to Zoetis–diluted(d)

0.68

0.08

0.04

0.97

1.77

Twelve Months Ended December 31, 2014

GAAP

Reported(1)

Purchase

Accounting

Adjustments

Acquisition-

Related

Costs(2)

Certain

Significant

Items(3)

Non-GAAP

Adjusted(a)

Revenue

$

4,785

$

—

$

—

$

—

$

4,785

Cost of sales(b)

1,717

(4

)

—

(33

)

1,680

Gross profit

3,068

4

—

33

3,105

Selling, general and administrative expenses(b)

1,643

—

—

(136

)

1,507

Research and development expenses(b)

396

(2

)

—

(1

)

393

Amortization of intangible assets(c)

60

(45

)

—

—

15

Restructuring charges and certain acquisition-related costs

25

—

(8

)

(17

)

—

Interest expense

117

—

—

—

117

Other (income)/deductions–net

7

—

—

(18

)

(11

)

Income before provision for taxes on income

820

51

8

205

1,084

Provision for taxes on income

233

17

3

37

290

Income from continuing operations

587

34

5

168

794

Net loss attributable to noncontrolling interests

4

—

—

—

4

Net income attributable to Zoetis

583

34

5

168

790

Earnings per common share attributable to Zoetis–diluted(d)

1.16

0.07

0.01

0.33

1.57

(a)

Non-GAAP adjusted net income and its components and non-GAAP
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS. Despite the importance of these measures to management in goal
setting and performance measurement, non-GAAP adjusted net income
and its components and non-GAAP adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, non-GAAP
adjusted net income and its components and non-GAAP adjusted diluted
EPS (unlike U.S. GAAP net income and its components and diluted EPS)
may not be comparable to the calculation of similar measures of
other companies. Non-GAAP adjusted net income and its components and
non-GAAP adjusted diluted EPS are presented solely to permit
investors to more fully understand how management assesses
performance.

(b)

Exclusive of amortization of intangible assets, except as discussed
in footnote (c) below.

(c)

Amortization expense related to finite-lived acquired intangible
assets that contribute to our ability to sell, manufacture,
research, market and distribute products, compounds and
intellectual property is included in Amortization of intangible
assets as these intangible assets benefit multiple business
functions. Amortization expense related to acquired intangible
assets that are associated with a single function is included in Cost
of sales, Selling, general and administrative expenses or Research
and development expenses, as appropriate.

(d)

EPS amounts may not add due to rounding.

See Notes to Reconciliation of GAAP Reported to Non-GAAP Adjusted
Information for notes (1), (2) and (3).

Certain amounts may reflect rounding adjustments.

ZOETIS INC.

NOTES TO RECONCILIATION OF GAAP REPORTED TO NON-GAAP ADJUSTED
INFORMATION

CERTAIN LINE ITEMS

(UNAUDITED)

(millions of dollars)

(1)

The consolidated statements of income present the three and twelve
months ended December 31, 2015 and 2014. Subsidiaries operating
outside the United States are included for the three and twelve
months ended November 30, 2015 and 2014.

(2)

Acquisition-related costs include the following:

Fourth Quarter

Full Year

2015

2014

2015

2014

Transaction costs(a)

$

9

$

—

$

9

$

—

Integration costs(b)

1

3

10

8

Other(c)

—

—

2

—

Total acquisition-related costs—pre-tax

10

3

21

8

Income taxes(d)

1

1

(1

)

3

Total acquisition-related costs—net of tax

$

9

$

2

$

22

$

5

(a)

Transaction costs represent external costs directly related to
acquiring businesses and primarily include expenditures for
banking, legal, accounting and other similar services. Included in Restructuring
charges and certain acquisition-related costs.

(b)

Integration costs represent external, incremental costs directly
related to integrating acquired businesses and primarily include
expenditures for consulting and the integration of systems and
processes. Included in Restructuring charges and certain
acquisition-related costs.

(c)

Included in Other (income) deductions—net.

(d)

Included in Provision for taxes on income. Income taxes
include the tax effect of the associated pre-tax amounts,
calculated by determining the jurisdictional location of the
pre-tax amounts and applying that jurisdiction's applicable tax
rate, as well as a tax charge related to the acquisition of
certain assets of Abbott Animal Health.

(3) Certain significant items include the following:

Fourth Quarter

Full Year

2015

2014

2015

2014

Operational efficiency initiative(a)

$

52

$

—

$

346

$

—

Supply network strategy(b)

4

—

27

—

Other restructuring charges and cost-reduction/productivity
initiatives(c)

—

13

—

18

Certain asset impairment charges(d)

3

—

5

6

Net gain on sale of assets(e)

—

(2

)

—

(5

)

Stand-up costs(f)

34

62

118

168

Foreign currency loss related to Venezuela revaluation(g)

93

—

93

—

Other(h)

—

5

3

18

Total certain significant items—pre-tax

186

78

592

205

Income taxes(i)

15

12

103

37

Total certain significant items—net of tax

$

171

$

66

$

489

$

168

(a)

For the three months ended December 31, 2015, includes
restructuring charges of $30 million related to employee
termination costs ($25 million) and asset impairments ($5
million), included in Restructuring charges and certain
acquisition-related costs, inventory write-offs of $8 million,
included in Cost of sales, accelerated depreciation of $2
million, included in Research and development expenses, and
$12 million primarily related to consulting fees included in Selling,
general and administrative expenses. For the twelve months
ended December 31, 2015, includes restructuring charges of $291
million related to employee termination costs ($253 million) and
asset impairments ($38 million), included in Restructuring
charges and certain acquisition-related costs, inventory
write-offs of $13 million, included in Cost of sales,
accelerated depreciation of $2 million, included in Research
and development expenses, and $40 million primarily related to
consulting fees included in Selling, general and administrative
expenses.

(b)

For the three months ended December 31, 2015, includes accelerated
depreciation of $1 million, included in Cost of sales, and
$3 million primarily related to consulting fees, included in Cost
of sales. For the twelve months ended December 31, 2015,
includes restructuring charges of $10 million related to employee
termination costs ($9 million) and asset impairments ($1 million),
included in Restructuring charges and certain
acquisition-related costs, accelerated depreciation of $1
million, included in Cost of sales, and $16 million
primarily related to consulting fees, included in Cost of sales.

(c)

Represents charges incurred for restructuring and
cost-reduction/productivity initiatives. For the three and twelve
months ended December 31, 2014, primarily represents employee
severance costs in Europe and our global manufacturing operations.
Included in Restructuring charges and certain
acquisition-related costs.

(d)

Included in Other (income)/deductions—net. For the three
and twelve months ended December 31, 2015, represents impairment
charges related to assets held by our joint venture in Taiwan. The
twelve months ended December 31, 2015, also includes an impairment
of IPR&D assets related to the termination of a canine oncology
project. For the twelve months ended December 31, 2014, represents
an impairment charge related to an IPR&D project acquired with the
FDAH acquisition in 2009.

(e)

For the three months ended December 31, 2014, represents the net
gain on the government-mandated sale of certain product rights in
Argentina that were acquired with the FDAH acquisition in 2009,
included in Other (income)/deductions—net. For the twelve
months ended December 31, 2014, primarily represents the Zoetis
portion of a net gain on the sale of land by our Taiwan joint
venture ($3 million) and the net gain on the government-mandated
sale of certain product rights in Argentina that were acquired
with the FDAH acquisition in 2009 ($2 million), included in Other
(income)/deductions—net.

(f)

Represents certain nonrecurring costs related to becoming an
independent public company, such as new branding (including
changes to the manufacturing process for required new packaging),
the creation of standalone systems and infrastructure, site
separation, and certain legal registration and patent assignment
costs. For the three months ended December 31, 2015, included in Cost
of sales ($11 million), Selling, general and administrative
expenses ($22 million), and Other (income)/deductions—net
($1 million). For the twelve months ended December 31, 2015,
included in Cost of sales ($27 million), Selling, general and
administrative expenses ($90 million), and Other
(income)/deductions—net ($1 million). For the three months
ended December 31, 2014, included in Cost of sales ($18
million), Selling, general and administrative expenses ($41
million), and Other (income)/deductions—net ($3 million).
For the twelve months ended December 31, 2014, included in Cost
of sales ($32 million), Selling, general and administrative
expenses ($131 million), and Other (income)/deductions—net
($5 million).

The twelve months ended December 31, 2015, represents charges due to
unusual investor-related activities. The three months ended December
31, 2014, represents charges due to unusual investor-related
activities. For the twelve months ended December 31, 2014, primarily
includes a charge associated with a commercial settlement in Mexico
($13 million), partially offset by the insurance recovery ($1
million income), charges due to unusual investor-related activities
($5 million), a pension plan settlement charge related to the
divestiture of a manufacturing plant ($4 million), and an insurance
recovery of other litigation related charge ($2 million income).

(i)

Included in Provision for taxes on income. Income taxes
include the tax effect of the associated pre-tax amounts,
calculated by determining the jurisdictional location of the
pre-tax amounts and applying that jurisdiction's applicable tax
rate. The twelve months ended December 31, 2015, also includes a
net tax benefit related to the revaluation of deferred taxes and
other deferred tax adjustments.

ZOETIS INC.

ADJUSTED SELECTED COSTS AND EXPENSES(a)

(UNAUDITED)

(millions of dollars)

% Change

Fourth Quarter

(Favorable)/Unfavorable

2015

2014

Total

Foreign

Exchange

Operational

Adjusted cost of sales

$

467

$

471

(1

)%

(3

)%

2

%

As a percent of revenue

36.7

%

35.7

%

NA

NA

NA

Adjusted SG&A expenses

390

450

(13

)%

(6

)%

(7

)%

Adjusted R&D expenses

106

122

(13

)%

(4

)%

(9

)%

Adjusted net income attributable to Zoetis

214

203

5

%

(24

)%

29

%

% Change

Full Year

(Favorable)/Unfavorable

2015

2014

Total

Foreign

Exchange

Operational

Adjusted cost of sales

$

1,667

$

1,680

(1

)%

(8

)%

7

%

As a percent of revenue

35.0

%

35.1

%

NA

NA

NA

Adjusted SG&A expenses

1,399

1,507

(7

)%

(7

)%

—

%

Adjusted R&D expenses

360

393

(8

)%

(3

)%

(5

)%

Adjusted net income attributable to Zoetis

889

790

13

%

(11

)%

24

%

(a)

Adjusted cost of sales, adjusted selling, general, and
administrative (SG&A) expenses, adjusted research and development
(R&D) expenses, and adjusted net income attributable to Zoetis are
defined as the corresponding reported U.S. generally accepted
accounting principles (GAAP) income statement line items excluding
purchase accounting adjustments, acquisition-related costs, and
certain significant items. Reconciliations of certain reported to
adjusted information for the three and twelve months ended December
31, 2015 and 2014 are provided in the materials accompanying this
report. These adjusted income statement line item measures are not,
and should not be viewed as, substitutes for the corresponding U.S.
GAAP line items.

ZOETIS INC.

2016 GUIDANCE

Selected Line Items

(millions of dollars, except per share amounts)

As provided on

November 3, 2015

January EC

Tax Matter(a)

Foreign

Exchange and

Venezuela(b)

Other

Updated

Full Year 2016

Revenue

$4,750 to $4,875

($125)

$25

$4,650 to $4,775

Operational growth

3% to 5%

2% to 4%

Adjusted cost of sales as a percentage of revenue(c)

33% to 34%

33% to 34%

Adjusted SG&A expenses(c)

$1,310 to $1,360

($35)

($25)

$1,250 to $1,300

Adjusted R&D expenses(c)

$360 to $380

$360 to $380

Adjusted interest expense and other

(income)/deductions(c)

Approximately $150

Approximately $150

Adjusted EBIT margin(c)

Approximately 31%

Approximately 31%

Effective tax rate on adjusted income(c)

Approximately 28%

Approximately 33%

Adjusted diluted EPS(c)

$1.84 to $1.94

($0.13)

($0.06)

$0.06

$1.71 to $1.81

Adjusted net income(c)

$925 to $975

($65)

($30)

$25

$855 to $905

Operational growth

14% to 20%

6% to 12%

Certain significant items(d) and acquisition-related

costs

$130 to $180

($60)

$70 to $120

Reported diluted EPS

$1.50 to $1.68

($0.24)

($0.06)

$0.10

$1.30 to $1.48

A reconciliation of 2016 adjusted net income and adjusted diluted
EPS guidance to 2016 reported net income attributable to Zoetis and
reported diluted EPS attributable to Zoetis common shareholders
guidance follows:

Full-Year 2016 Guidance

(millions of dollars, except per share amounts)

Net Income

Diluted EPS

Adjusted net income/diluted EPS(c) guidance

~$855 - $905

~$1.71 - $1.81

Purchase accounting adjustments

~(60)

~(0.12)

Certain significant items(d) and acquisition-related costs

~(105 - 145)

~(0.21 - 0.29)

Reported net income attributable to Zoetis/diluted EPS guidance

~$650 - $740

~$1.30 - $1.48

(a)

Reflects the impact of the European Commission decision regarding
Belgium tax rulings, as announced in January 2016. The reported
diluted EPS impact includes $55 million of one-time charges, in
addition to the $65 million impact to adjusted net income.

(b)

Reflects the impact of changes to foreign exchange rates
underlying prior guidance and late January 2016 foreign exchange
rates.

(c)

Adjusted net income and its components and adjusted diluted EPS are
defined as reported U.S. generally accepted accounting principles
(GAAP) net income and its components and reported diluted EPS
excluding purchase accounting adjustments, acquisition-related costs
and certain significant items. Adjusted cost of sales, adjusted
selling, general and administrative (SG&A) expenses, adjusted
research and development (R&D) expenses, adjusted interest expense
and adjusted other (income)/deductions are income statement line
items prepared on the same basis, and, therefore, components of the
overall adjusted income measure. Adjusted earnings before interest
and taxes (EBIT) is defined as reported EBIT excluding purchase
accounting adjustments, acquisition-related costs and certain
significant items. Despite the importance of these measures to
management in goal setting and performance measurement, adjusted net
income and its components and adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, adjusted net
income and its components and adjusted diluted EPS (unlike U.S. GAAP
net income and its components and diluted EPS) may not be comparable
to the calculation of similar measures of other companies. Adjusted
net income and its components and adjusted diluted EPS are presented
solely to permit investors to more fully understand how management
assesses performance. Adjusted net income and its components and
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS.

(d)

Primarily includes certain nonrecurring costs related to
restructuring and other charges for the operational efficiency
initiative and supply network strategy, becoming an independent
public company, such as new branding (including changes to the
manufacturing process for required new packaging), the creation of
standalone systems and infrastructure, site separation, and certain
legal registration and patent assignment costs.

ZOETIS INC.

2017 GUIDANCE

Selected Line Items

(millions of dollars, except per share amounts)

As provided on

November 3, 2015

January EC

Tax Matter(a)

Foreign

Exchange and

Venezuela(b)

Other

Updated

Full Year 2017

Revenue

$5,025 to $5,225

($150)

$75

$4,950 to $5,150

Operational growth

4% to 9%

5% to 9%

Adjusted cost of sales as a percentage of revenue(c)

32% to 33%

32% to 33%

Adjusted SG&A expenses(c)

$1,270 to $1,360

($40)

($10)

$1,220 to $1,310

Adjusted R&D expenses(c)

$360 to $380

$360 to $380

Adjusted interest expense and other

(income)/deductions(c)

Approximately $150

Approximately $150

Adjusted EBIT margin(c)

Approximately 34%

Approximately 34%

Effective tax rate on adjusted income(c)

Approximately 28%

Approximately 30%

Adjusted diluted EPS(c)

$2.24 to $2.38

($0.06)

($0.08)

$0.08

$2.18 to $2.32

Adjusted net income(c)

$1,125 to $1,195

($30)

($40)

$35

$1,090 to $1,160

Operational growth

18% to 26%

24% to 32%

Certain significant items(d) and acquisition-related

costs

$50 to $80

$50 to $80

Reported diluted EPS

$2.04 to $2.22

($0.06)

($0.08)

$0.05

$1.95 - $2.13

A reconciliation of 2017 adjusted net income and adjusted diluted
EPS guidance to 2017 reported net income attributable to Zoetis and
reported diluted EPS attributable to Zoetis common shareholders
guidance follows:

Full-Year 2017 Guidance

(millions of dollars, except per share amounts)

Net Income

Diluted EPS

Adjusted net income/diluted EPS(c) guidance

~$1,090 - $1,160

~$2.18 - $2.32

Purchase accounting adjustments

~(60)

~(0.12)

Certain significant items(d) and acquisition-related costs

~(35 - 55)

~(0.07 - 0.11)

Reported net income attributable to Zoetis/diluted EPS guidance

~$975 - $1,065

~$1.95 - $2.13

(a)

Reflects the impact of the European Commission decision regarding
Belgium tax rulings, as announced in January 2016.

(b)

Reflects the impact of changes to foreign exchange rates
underlying prior guidance and late January 2016 foreign exchange
rates.

(c)

Adjusted net income and its components and adjusted diluted EPS are
defined as reported U.S. generally accepted accounting principles
(GAAP) net income and its components and reported diluted EPS
excluding purchase accounting adjustments, acquisition-related costs
and certain significant items. Adjusted cost of sales, adjusted
selling, general and administrative (SG&A) expenses, adjusted
research and development (R&D) expenses, adjusted interest expense,
adjusted other (income)/deductions are income statement line items
prepared on the same basis, and, therefore, components of the
overall adjusted income measure. Adjusted earnings before interest
and taxes (EBIT) is defined as reported EBIT excluding purchase
accounting adjustments, acquisition-related costs and certain
significant items. Despite the importance of these measures to
management in goal setting and performance measurement, adjusted net
income and its components and adjusted diluted EPS are non-GAAP
financial measures that have no standardized meaning prescribed by
U.S. GAAP and, therefore, have limits in their usefulness to
investors. Because of the non-standardized definitions, adjusted net
income and its components and adjusted diluted EPS (unlike U.S. GAAP
net income and its components and diluted EPS) may not be comparable
to the calculation of similar measures of other companies. Adjusted
net income and its components and adjusted diluted EPS are presented
solely to permit investors to more fully understand how management
assesses performance. Adjusted net income and its components and
adjusted diluted EPS are not, and should not be viewed as,
substitutes for U.S. GAAP net income and its components and diluted
EPS.

(d)

Primarily includes certain nonrecurring costs related to
restructuring and other charges for the operational efficiency
initiative and supply network strategy, becoming an independent
public company, such as new branding (including changes to the
manufacturing process for required new packaging), the creation of
standalone systems and infrastructure, site separation, and certain
legal registration and patent assignment costs.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2015

2014

Total

Foreign

Exchange

Operational

Revenue:

Livestock

$

803

$

904

(11

)%

(10

)%

(1

)%

Companion Animal

457

405

13

%

(6

)%

19

%

Contract Manufacturing

14

11

27

%

(14

)%

41

%

Total Revenue

$

1,274

$

1,320

(3

)%

(9

)%

6

%

U.S.

Livestock

$

348

$

368

(5

)%

—

%

(5

)%

Companion Animal

288

221

30

%

—

%

30

%

Total U.S. Revenue

$

636

$

589

8

%

—

%

8

%

International

Livestock

$

455

$

536

(15

)%

(17

)%

2

%

Companion Animal

169

184

(8

)%

(14

)%

6

%

Total International Revenue

$

624

$

720

(13

)%

(16

)%

3

%

Livestock:

Cattle

$

479

$

540

(11

)%

(10

)%

(1

)%

Swine

173

199

(13

)%

(9

)%

(4

)%

Poultry

126

140

(10

)%

(10

)%

—

%

Other

25

25

—

%

(19

)%

19

%

Total Livestock Revenue

$

803

$

904

(11

)%

(10

)%

(1

)%

Companion Animal:

Horses

$

45

$

55

(18

)%

(5

)%

(13

)%

Dogs and Cats

412

350

18

%

(7

)%

25

%

Total Companion Animal Revenue

$

457

$

405

13

%

(6

)%

19

%

(a)

Beginning in the second quarter of 2015, we changed our segment
reporting structure. The prior period presentation has been revised
to reflect the new segment reporting structure.

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

CONSOLIDATED REVENUE BY SEGMENT(a) AND SPECIES

(UNAUDITED)

(millions of dollars)

Full Year

% Change

2015

2014

Total

Foreign

Exchange

Operational

Revenue:

Livestock

$

2,958

$

3,103

(5

)%

(9

)%

4

%

Companion Animal

1,756

1,632

8

%

(6

)%

14

%

Contract Manufacturing

51

50

2

%

(9

)%

11

%

Total Revenue

$

4,765

$

4,785

—

%

(8

)%

8

%

U.S.

Livestock

$

1,251

$

1,163

8

%

—

%

8

%

Companion Animal

1,077

896

20

%

—

%

20

%

Total U.S. Revenue

$

2,328

$

2,059

13

%

—

%

13

%

International

Livestock

$

1,707

$

1,940

(12

)%

(15

)%

3

%

Companion Animal

679

736

(8

)%

(15

)%

7

%

Total International Revenue

$

2,386

$

2,676

(11

)%

(15

)%

4

%

Livestock:

Cattle

$

1,680

$

1,747

(4

)%

(9

)%

5

%

Swine

668

695

(4

)%

(9

)%

5

%

Poultry

525

568

(8

)%

(9

)%

1

%

Other

85

93

(9

)%

(16

)%

7

%

Total Livestock Revenue

$

2,958

$

3,103

(5

)%

(9

)%

4

%

Companion Animal:

Horses

$

162

$

182

(11

)%

(6

)%

(5

)%

Dogs and Cats

1,594

1,450

10

%

(7

)%

17

%

Total Companion Animal Revenue

$

1,756

$

1,632

8

%

(6

)%

14

%

(a)

Beginning in the second quarter of 2015, we changed our segment
reporting structure. The prior period presentation has been revised
to reflect the new segment reporting structure.

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

CONSOLIDATED REVENUE BY KEY INTERNATIONAL MARKETS

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2015

2014

Total

Foreign

Exchange

Operational

Total International

$

624

$

720

(13

)%

(16

)%

3

%

Australia

35

48

(27

)%

(18

)%

(9

)%

Brazil

65

93

(30

)%

(40

)%

10

%

Canada

55

60

(8

)%

(14

)%

6

%

China

29

27

7

%

(7

)%

14

%

France

31

37

(16

)%

(10

)%

(6

)%

Germany

34

43

(21

)%

(12

)%

(9

)%

Italy

24

27

(11

)%

(15

)%

4

%

Japan

26

26

—

%

(10

)%

10

%

Mexico

20

22

(9

)%

(26

)%

17

%

Spain

26

23

13

%

(15

)%

28

%

United Kingdom

46

44

5

%

(3

)%

8

%

Other Developed

77

84

(8

)%

(12

)%

4

%

Other Emerging

156

186

(16

)%

(13

)%

(3

)%

Full Year

% Change

2015

2014

Total

Foreign

Exchange

Operational

Total International

$

2,386

$

2,676

(11

)%

(15

)%

4

%

Australia

144

173

(17

)%

(17

)%

—

%

Brazil

250

310

(19

)%

(30

)%

11

%

Canada

172

191

(10

)%

(13

)%

3

%

China

123

107

15

%

(2

)%

17

%

France

108

151

(28

)%

(13

)%

(15

)%

Germany

120

150

(20

)%

(16

)%

(4

)%

Italy

90

104

(13

)%

(16

)%

3

%

Japan

101

104

(3

)%

(14

)%

11

%

Mexico

75

84

(11

)%

(18

)%

7

%

Spain

86

91

(5

)%

(18

)%

13

%

United Kingdom

168

166

1

%

(8

)%

9

%

Other Developed

288

326

(12

)%

(14

)%

2

%

Other Emerging

661

719

(8

)%

(10

)%

2

%

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

SEGMENT(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Fourth Quarter

% Change

2015

2014

Total

Foreign

Exchange

Operational

U.S.:

Revenue

$

636

$

589

8

%

—

%

8

%

Cost of Sales

152

138

10

%

—

%

10

%

Gross Profit

484

450

8

%

—

%

8

%

Gross Margin

76.1

%

76.4

%

Operating Expenses

115

123

(7

)%

—

%

(7

)%

Other (income)/deductions

(1

)

—

*

*

*

U.S. Earnings

$

370

$

327

13

%

—

%

13

%

International:

Revenue

$

624

$

720

(13

)%

(16

)%

3

%

Cost of Sales

235

263

(11

)%

(14

)%

3

%

Gross Profit

389

457

(15

)%

(18

)%

3

%

Gross Margin

62.3

%

63.5

%

Operating Expenses

147

195

(25

)%

(13

)%

(12

)%

Other (income)/deductions

(8

)

(3

)

*

*

*

International Earnings

$

250

$

265

(6

)%

(20

)%

14

%

Total Reportable Segments

$

620

$

592

5

%

(9

)%

14

%

Other business activities(b)

(85

)

(94

)

(10

)%

Reconciling Items:

Corporate(c)

(214

)

(170

)

26

%

Purchase accounting adjustments(d)

(16

)

(13

)

23

%

Acquisition-related costs(e)

(10

)

(3

)

*

Certain significant items(f)

(186

)

(78

)

*

Other unallocated(g)

(40

)

(79

)

(49

)%

Total Earnings(h)

$

69

$

155

(55

)%

* Calculation not meaningful

(a)

Beginning in the second quarter of 2015, we changed our segment
reporting structure and recategorized certain costs that are not
allocated to our operating segments. The prior period presentation
has been revised to reflect the new segment reporting structure.

(b)

Other business activities reflect the research and development costs
managed by our Research and Development organization as well as our
contract manufacturing business.

(c)

Corporate includes, among other things, administration expenses,
interest expense, certain compensation and other costs not charged
to our operating segments.

Certain significant items includes substantive, unusual items that,
either as a result of their nature or size, would not be expected to
occur as part of our normal business on a regular basis. Such items
primarily include certain costs related to becoming an independent
public company, restructuring charges and implementation costs
associated with our cost-reduction/productivity initiatives that are
not associated with an acquisition, costs associated with the
operational efficiency initiative, certain legal and commercial
settlements, and the impact of divestiture-related gains and losses.

(g)

Includes overhead expenses associated with our manufacturing and
supply operations not directly attributable to an operating segment,
as well as procurement costs.

(h)

Defined as income before provision for taxes on income.

Certain amounts and percentages may reflect rounding adjustments.

ZOETIS INC.

SEGMENT(a) EARNINGS

(UNAUDITED)

(millions of dollars)

Full Year

% Change

2015

2014

Total

Foreign

Exchange

Operational

U.S.:

Revenue

$

2,328

$

2,059

13

%

—

%

13

%

Cost of Sales

551

482

14

%

—

%

14

%

Gross Profit

1,777

1,577

13

%

—

%

13

%

Gross Margin

76.3

%

76.6

%

Operating Expenses

389

401

(3

)%

—

%

(3

)%

Other (income)/deductions

(2

)

—

*

*

*

U.S. Earnings

$

1,390

$

1,176

18

%

—

%

18

%

International:

Revenue

$

2,386

$

2,676

(11

)%

(15

)%

4

%

Cost of Sales

873

964

(9

)%

(11

)%

2

%

Gross Profit

1,513

1,712

(12

)%

(17

)%

5

%

Gross Margin

63.4

%

64.0

%

Operating Expenses

570

685

(17

)%

(14

)%

(3

)%

Other (income)/deductions

2

2

—

%

(43

)%

43

%

International Earnings

$

941

$

1,025

(8

)%

(18

)%

10

%

Total Reportable Segments

$

2,331

$

2,201

6

%

(8

)%

14

%

Other business activities(b)

(293

)

(318

)

(8

)%

Reconciling Items:

Corporate(c)

(606

)

(559

)

8

%

Purchase accounting adjustments(d)

(57

)

(51

)

12

%

Acquisition-related costs(e)

(21

)

(8

)

*

Certain significant items(f)

(592

)

(205

)

*

Other unallocated(g)

(217

)

(240

)

(10

)%

Total Earnings(h)

$

545

$

820

(34

)%

* Calculation not meaningful

(a)

Beginning in the second quarter of 2015, we changed our segment
reporting structure and recategorized certain costs that are not
allocated to our operating segments. The prior period presentation
has been revised to reflect the new segment reporting structure.

(b)

Other business activities reflect the research and development costs
managed by our Research and Development organization as well as our
contract manufacturing business.

(c)

Corporate includes, among other things, administration expenses,
interest expense, certain compensation and other costs not charged
to our operating segments.

Certain significant items includes substantive, unusual items that,
either as a result of their nature or size, would not be expected to
occur as part of our normal business on a regular basis. Such items
primarily include certain costs related to becoming an independent
public company, restructuring charges and implementation costs
associated with our cost-reduction/productivity initiatives that are
not associated with an acquisition, costs associated with the
operational efficiency initiative, certain legal and commercial
settlements, and the impact of divestiture-related gains and losses.

(g)

Includes overhead expenses associated with our manufacturing and
supply operations not directly attributable to an operating segment,
as well as procurement costs.